Estimation of the Probability of Credit Card Charge-Off in the Presence of Competing Risks
28 Pages Posted: 11 Mar 2015 Last revised: 8 Feb 2016
Date Written: December 5, 2015
Abstract
The primary reasons for credit card charge-off are delinquency and bankruptcy. In this paper, we develop a dependent competing risks model to investigate the determinants of time to delinquency and time to bankruptcy jointly, and to investigate their interdependence. Our results show that delinquency and bankruptcy are sensitive to unemployment rate and some account-specific measures. In addition, delinquency is highly sensitive to recent legislative reform (Credit Card Act of 2009). We find a negative interdependence between the delinquency and bankruptcy hazards through a significant negative correlation between the unobserved heterogeneities. We show that the independence assumption of competing risks would produce biased estimates and lower the predictive accuracy.
Keywords: Credit Card, Charge-Off, Delinquency and Bankruptcy, Unobserved Heterogeneity, Duration Models, Competing Risks
JEL Classification: C23, C24, C41, G30, G33
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